On the New York Mets and Negative Absorption
If you were a New York Mets fan in 1986, like former Mayor Ed Koch was, the number 19 was a good thing.
That year, while rents were flat at an average of $40 per square foot despite 35 million square feet of new construction, the Mets acquired a left-handed pitcher who wore the number 19 and helped propel the team to a World Series Championship.
But if you are in New York City real estate today, 19 represents the number of buildings with negative absorption of at least 40,000 square feet in the month of February, which is not as amazin’. Nine of these buildings placed 100,000 square feet or more on the market last month, led by a 340,588-square-foot sublease from AXA Equitable at 1290 Avenue of the Americas, a 311,308-square-foot direct block of space at 7 West 34th Street sparked by The New York Gift Mart’s scheduled move-out by the end of this year, and 286,169 square feet at 40 Rector Street (the majority of which will be vacated by the New York City Office of Labor Relations at the end of the year).
All of these space returns, coupled with minimal leasing activity, caused a 40 basis point increase to 11.8 percent and 1.5 million square feet of negative absorption. But fret not, because history repeats itself, and in both 2011 and 2012, the first three months of the year started off with significant amounts of negative absorption—negative 1.3 million square feet and negative 835,000 square feet, respectively. And despite rough starts in the last two years as firms and landlords placed plenty of space on the market, each year ended with absorption in the black.
Expect absorption to move into the red as the year chugs along; the big tenants north of 100,000 square feet typically account for 50 or more transactions in any given year, and only five have closed so far this year.
Richard Persichetti is the vice president of research, marketing and consulting at Cassidy Turley, with 14 years of NYC research experience.